Material Adverse Change Clauses and Acquisition Dynamics

David J. Denis and Antonio J. Macias

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: Material-Adverse-Change clauses (MACs) are present in over 90% of acquisition agreements. These clauses are the outcome of extensive negotiation and exhibit substantial cross-sectional variation in the number and types of events that are excluded from being material adverse events (MAEs). MAEs are the underlying cause of more than 50% of acquisition terminations and 60% of acquisition renegotiations. Moreover, these renegotiations lead to substantial changes in the price offered to target shareholders (13-15%). We find that acquisitions with fewer MAE exclusions are characterized by wider arbitrage spreads (i.e., the difference between the price offered to target shareholders and the current market price of the target s shares) during the acquisition period and are associated with higher offer premiums. We conclude that material adverse change clauses have an economically important impact on the dynamics of corporate acquisitions and stock prices during the acquisition period.

Keywords: Acquisitions; Contractual mechanisms; Material-Adverse-Change clause (MACs); Material-Adverse Event (MAE) exclusions; merger agreement; risk allocation; flexibility (search for similar items in EconPapers)
JEL-codes: D86 G14 G32 G34 K12 L14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-04
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://business.purdue.edu/research/Working-papers-series/2010/1242.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1242

Access Statistics for this paper

More papers in Purdue University Economics Working Papers from Purdue University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Business PHD ().